SUSSMAN v. BANK OF ISRAEL

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

July 17, 1992

ERWIN SUSSMAN and IRA GUILDEN, deceased, by and through PAUL GUILDEN, his personal representative, Plaintiffs, against BANK OF ISRAEL, MINISTRY OF FINANCE OF THE GOVERNMENT OF ISRAEL, BANK HAPOALIM, LTD., MOSES MANDELBAUM, GALIA MAOR, ZEEV EVELES, and JOHN DOES 1-5, Defendants.

HAIGHT, JR.

The opinion of the court was delivered by: CHARLES S. HAIGHT, JR.

MEMORANDUM OPINION AND ORDER

HAIGHT, District Judge:

Plaintiff Irvin Sussman is a citizen of Sweden and a legal permanent resident of the State of California. Plaintiff Ira Guilden, deceased, was a citizen of the United States and a resident of the State of New York. Upon his death in November 1984 Paul Guilden, a United States citizen and a resident of New York, became the personal representative of Ira Guilden.

At the pertinent times plaintiffs were two of the principal investors in North American Bank ("NAB"), a financial institution incorporated in Israel in 1977 and liquidated in 1988 by Israeli authorities after the discovery of fraud perpetrated by its Israeli managers. Plaintiffs allege that the demise of NAB caused them to lose the full amount of their investments, $ 10 million in the case of plaintiff Sussman and $ 7 million in the case of plaintiff Guilden.

By this action plaintiffs seek to recover those amounts in compensatory damages together with $ 20 million in punitive damages. The named defendants are the Bank of Israel ("BOI") and the Ministry of Finance of the Government of Israel (the "Ministry"), both agencies of the Government of Israel; Bank Hapoalim, Ltd. ("Hapoalim"), a large Israeli private financial institution which maintains a branch in New York City; Moses Mandelbaum, an Israeli citizen and resident and at the pertinent times Governor of BOI; Galia Maor, an Israeli citizen and resident and at the pertinent times Supervisor of Banks at BOI; Zeev Abeles, an Israeli citizen and resident who is currently Deputy Supervisor of Banks at BOI and at the pertinent times held other offices in that agency
*fn1"
The "John Doe" defendants 1-5 are included because plaintiffs allege, upon information and belief, that additional unknown individuals took part in the fraudulent conspiracy alleged in the complaint.

All defendants now move to dismiss the action on the ground of forum non conveniens. In the alternative, defendants move to dismiss the complaint or for summary judgment on various substantive grounds.

Background

The complaint alleges that plaintiffs Sussman and Guilden were in a group of three non-Israeli investors who provided substantial funds in 1977 for the creation of NAB. They did so, they allege, on the basis of representations that BOI would oversee the affairs of NAB and detect and prevent fraud.

The complaint at bar asserts five claims against all defendants. The first is for fraud and misrepresentation. The "defendants" (unspecified) are charged with having made false statements of facts to plaintiffs "on October 18, 1983, in Jerusalem, and thereafter," including assurances by "the defendants" that NAB was financially sound and well managed; plaintiff had no cause for concern about their investments; and BOI was exercising diligent oversight over NAB's affairs and had not uncovered any irregularities in the bank's management. These false statements were allegedly made to cover up the secret $ 10 million loan provided to continue stock manipulation by NAB's managers, and for the purpose of inducing plaintiffs to maintain their NAB investments. Plaintiffs allege that the "defendants" concealed the true facts from plaintiffs until those facts were revealed during Halperin's criminal trial in 1990. Plaintiffs allege they did not know the true facts until they conducted an investigation based upon (the) evidence elicited during Halperin's trial. Complaint at PP 60-64.

The four other claims, also against all defendants, proceed from this same nexus of alleged facts. Those claims are for negligent misrepresentation, concealment, breach of a duty to disclose and restitution.

As noted, all defendants move to dismiss the complaint on the ground of forum non conveniens. They say that the civil courts of Israel furnish the appropriate forum for plaintiff's claims. In the alternative, defendants or some of them assert that the complaint should be dismissed on the grounds of the statute of limitations, sovereign immunity, the act of state doctrine, lack of personal jurisdiction, and failure to plead fraud with the specificity required by Rule 9(b), Fed.R.Civ.P.

If defendants' forum non conveniens motion is well founded, I need not and should not reach the other issues.

In the case at bar, the Southern District of New York is not plaintiff Sussman's home forum. Sussman is a Swiss citizen and a California resident. To participate in a trial of his claims, Sussman must travel from California to New York or to Israel. The case is analogous to Mediterranean Golf, Inc. v. Hirsh, 783 F. Supp. 835, 842 (D.N.J. 1991), where the district court said:

In this case, Mediterranean Golf [a co-plaintiff] is a Delaware corporation with its principal place of business in Florida and Jones [the other plaintiff] is a resident of Florida. Therefore, New Jersey is a foreign forum to the Plaintiffs. Accordingly, the plaintiffs' choice of forum is entitled to less deference and the Plaintiffs must make more of a showing of convenience to be accorded the same treatment as a home state plaintiff."

As for co-plaintiff Guilden, Paul Guilden sues in a representative capacity, Ira Guilden having died. Arguably this dilutes the deference accorded to a home state plaintiff, although the Guilden estate is being administered in New York, an administration that has been delayed by the pendency of the Israeli liquidator's civil action in Israel against the non-Israeli NAB investors.

Where an American plaintiff chooses to invest in a foreign country and then complains of fraudulent acts occurring primarily in that country, the plaintiff's ability to rely upon citizenship as a talisman against forum non conveniens dismissal is diminished. That common sense proposition is illustrated by Howe v. Goldcorp Investments, Ltd., 946 F.2d 944 (1st Cir. 1991), cert. denied, 117 L. Ed. 2d 418, 112 S. Ct. 1172 (1992). Plaintiff purchased shares of a Canadian corporation in Canada. He commenced an action under United States securities laws for misrepresentations and violations of fiduciary duty, claiming to represent a class of 2,500 American shareholders. The district court dismissed the complaint on forum non conveniens grounds, holding that Canada was the appropriate forum. The First Circuit, beginning its analysis with references to Piper Aircraft and Gilbert, 946 F.2d at 950, rejected the argument of plaintiff and the SEC as amicus curiae that federal securities law "seeks so strongly to protect Americans who bought their shares abroad from misrepresentations (or violations of fiduciary duty) primarily taking place abroad that a court may not require an American shareholder to bring his case abroad in a nation that offers its shareholders roughly equivalent legal protections." Id. at 953 (emphasis in original). That reasoning applies to the case at bar a fortiori, since plaintiffs assert common law fraud claims, and do not invoke the federal securities laws.

For forum non conveniens analysis, the more relevant choice of law question is what constitutes a cause of action, rather than when it must be sued upon (always a forum law question in the absence of a controlling statute). This court must consider New York choice of law rules. However, contrary to plaintiff's contention, the law of the states where plaintiffs suffered economic loss as the result of defendants' alleged conduct does not furnish the controlling law on the propriety of that conduct.

In the case at bar, it cannot be gainsaid that plaintiffs make serious charges, involving a great deal of money, against high officials of the Israeli government. Plaintiffs say that these circumstances will prevent them from obtaining a fair hearing in the Israeli courts, so that Israel cannot be regarded as an alternative forum for forum non conveniens purposes.

Plaintiffs' initial condemnation of the Israeli court system was uncompromising. They said in their Main Brief at 22:

In short, Israel does not provide an "adequate" alternative forum because, in light of the controversial nature of the plaintiffs' allegations, the Israeli courts will not give them a fair hearing. The Israeli courts are subject to the influence of the government officials and agencies whom the plaintiffs are suing and are unlikely to credit the plaintiffs' allegations of official involvement in visut and acquiescence, for purposes of a "cover-up," in bank mismanagement in succeeding years. The only judicial forum where this conspiracy of silence can effectively be broken is a federal court in the United States.

Plaintiffs submitted no affidavits from individuals familiar with Israeli courts, or any other evidentiary material, to support that mass indictment of a democratic nation's judicial system. Defendants' reply papers include affidavits from two Israeli law professors stressing the independence of Israeli judges, who are tenured until the reach they age of 70. Indeed, readers of newspapers are aware of the fact that Israeli courts are entirely capable of making judgments displeasing to those in high civil or military authority.

Plaintiff, in a surreply submission permitted by this Court, offered an affidavit by Kenneth Mann, an Israeli law professor and attorney. The Mann affidavit is more moderate, at least in tone. He argues that the report of the Beisky Commission, established by the Israeli Parliament to investigate the bank shares crisis, and two decisions of the Israeli Supreme Court articulate a "passive bystander thesis" in respect of the BOI and other government officials: a thesis which, in Professor Mann's words, "holds that the commercial banks got away with a scheme of their own doing under the careless eye of the BOI and other government officials, while specifically rejecting the idea that the BOI conspired with the banks to establish and facilitate the visut." Affidavit at P 6. Those circumstances, Professor Mann argues, have created a "negative predisposition" against claims that government officials actively participated in misconduct, a phenomenon which "critically weakens the judicial neutrality necessary to a full and balanced consideration in an Israeli court of the . . . issues so central to the plaintiff's New York suit." Id. at P 22. Professor Mann concludes his affidavit by saying:

While I cannot say with certainty that any particular lower court in Israel will be adversely influenced by what has already happened, it is abundantly clear that, as a matter of institutional due process in civil litigation, the plaintiffs' reasons for seeking an alternative forum are well justified.

Id. at P 37.

Any moderation in the plaintiffs' criticism of the Israeli judicial system is more apparent than real. The concept of a "negative predisposition" (unknown in any forum non conveniens jurisprudence) is made up of subjective and objective elements. "Negative" is the subjective element; it reflects plaintiffs' concern that the perceived predisposition disfavors their cause. Presumably defendants, if they acknowledged the existence of a judicial predisposition, would regard it as a "positive" one. But the key word is "predisposition." Plaintiffs say that the circumstances of the case give rise to the existence of a predisposition against them on the part of the Israeli courts.

The proper inquiry goes to the court system, and not to the particular personalities or claims involved. Chief Judge Weinstein made that point in Murty v. Aga Khan, 92 F.R.D. 478 (E.D.N.Y. 1981), in which an American citizen resident in New York sued that formidable and wealthy spiritual and political leader and French citizen the Aga Khan. Judge Weinstein granted a motion to dismiss on forum non conveniens grounds and relegated the plaintiff to the courts of France. In doing so, Judge Weinstein rejected plaintiff's suggestion that he could not get a fair hearing suing the Aga Khan in that country. Relying in part upon that concept of comity which informs my conclusions in the case at bar, Judge Weinstein said at 92 F.R.D. 482:

Plaintiff's complaints about the influence which defendant can and will bring to bear on the French judicial system--though fervently presented--are not supported. He alleges neither that the French judiciary is inadequately protected from interference nor that it lacks appropriate procedural safeguards. The adequacy of a foreign forum for purposes of transfer of venue turns not on the status any individual litigant may hold in a foreign society, but on the soundness and procedural fairness of that society's court system.

Principles of comity as well as common knowledge preclude our characterizing the French judicial system as any less fair than our own; the French courts can be expected to protect American litigants.

In the case at bar, plaintiffs' expert Professor Mann is careful to refrain from saying that "any particular lower court in Israel will be adversely influenced" by the circumstances described in his affidavit. Stripped of rhetoric, all his affidavit really says is that he understands why plaintiffs would rather sue on their claims in the United States than in Israel. That is not a sufficient basis for regarding Israel as an inadequate forum. And it will be a black day for comity among sovereign nations when a court of one country, because of a perceived "negative predisposition," declares the incompetence or worse of another nation's judicial system.

Accordingly I conclude that the particular factors relied upon by the plaintiffs do not overcome the manifest truth that trial of plaintiffs' claims in Israel will be most convenient and will better serve the ends of justice.

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